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10 Well-Run, Profitable Banks (Update 3)

Prosperity Bancshares (PB - Get Report) of Houston closed at $40.35 Friday, returning 5% during 2011. Based on a quarterly payout of 20 cents, the shares have a dividend yield of 1.93%.

The company's third-quarter efficiency ratio was 39.82, according to SNL Financial.

SNL on Thursday included Prosperity on its list of 35 publicly traded banks that had "paid an increasing dividend of at least 1.5% every year for the last 10 years." Through Dec. 30, Prosperity's five-year total return was 27.45%, and the company paid out 24.5% of its earnings during 2011, leaving plenty of room to cover a dividend increase.

Prosperity on Tuesday announced it had completed its purchase of Texas Bankers of Austin, acquiring three branches and roughly $71 million in assets.

On Dec. 9, the company announced a deal to acquire
East Texas Financial Services (FFBT) of Tyler, to pick up three branches in Smith County for about $20 million.

Prosperity reported third-quarter net income of $36.4 million, or 77 cents a share, increasing from $32.2 million, or 69 cents a share, in the third quarter of 2010.

The third-quarter ROA was 1.52%, according to SNL.

Sterne Agee analyst Brett Rabatin said after the East Texas deal was announced that the transaction was "M&A next year, as the transaction is too small to have much impact on growth or EPS," even though the analyst called the deal "a solid one."

Rabatin has a neutral rating on the shares and estimates that Prosperity will earn $3.04 in 2012.

Deutsche Bank analyst Dave Rochester on Thursday initiated his firm's coverage of Prosperity Bancshares with a "Hold" rating and a $44 price target, calling the stock a "relatively safe haven," with earnings "upside from M&A," estimating EPS of $3.10 for 2012.

Rochester likes "the focus on accelerating organic growth," and also views Prosperity "as one of the strongest acquirers in the state," but awaits "a better entry point, as we expect a better chance for multiple compression in FY12 given declining expected [return on tangible equity in 2013] with continued mid single digit EPS growth."

The shares trade for 13 times the consensus 2012 EPS estimate of $3.04, among analysts polled by FactSet, and for three times their Sept. 30 tangible book value of $12.67, according to SNL Financial.

Out of 17 analysts covering Prosperity Bancshares, two rate the stock a buy, 14 have neutral ratings, and one analyst recommends selling the shares.

Interested in more on Prosperity Bancshares? See TheStreet Ratings' report card for
this stock.